Fig. 1 shows a finance decision map prepared by the owner of a dog-grooming business. She needs $9,000 for a wash station and dryers. The business has opera...
Question 1 Report
Fig. 1 shows a finance decision map prepared by the owner of a dog-grooming business. She needs $9,000 for a wash station and dryers. The business has operated for only six months and has limited retained profit.
(a) Identify the amount of external finance needed in Fig. 1. [1]
(b) Which option allows the business to use dryers without buying them immediately? [1]
(c) Explain one reason why the owner may prefer a loan to leasing the equipment. [2]
Answer Details
(a) External finance needed is $7,000. The owner supplies $2,000 from savings towards the $9,000 equipment requirement. [1]
(b) Leasing allows the business to use the dryers without buying them immediately. [1]
(c) A loan can be used to buy the wash station and dryers. Once purchased, the business owns the equipment and can keep using it or sell it, unlike leasing where the asset is normally not owned by the business. [2]
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